Second Half DRAM Outlook Gloomy... Is There a Way Out for Semiconductor Stocks?

Decline in Demand for IT Products like PCs and Smartphones
Forecasted Drop in DRAM Prices

Market Recovery Expected Only by Mid-Next Year
Target Prices for Samsung Electronics and SK Hynix Lowered

[Asia Economy Reporter Kwon Jae-hee] The semiconductor industry, led by South Korea, is facing dark clouds despite its prominence. Analysts attribute this to a decline in demand for electronic products, including PCs, due to the global economic recession and record inflation, as well as a decrease in demand for mining semiconductors caused by the cryptocurrency price crash. As a result, the semiconductor market, which surged during the COVID-19 pandemic, is believed to have peaked and is now declining, with securities firms consecutively lowering target prices for semiconductor stocks such as Samsung Electronics and SK Hynix.

According to the Korea Exchange as of 9:52 a.m. on the 6th, Samsung Electronics was trading at 57,000 KRW, down 0.3% from the previous trading day. This marks a 28.45% decline since the beginning of the year. SK Hynix was also down 0.97% at 91,600 KRW at the same time, representing about a 20% drop from its highest price of 134,000 KRW on February 17 this year.

The sluggish stock performance of leading semiconductor companies is partly due to the overall market downturn, but a significant factor is the reduced demand for electronic products. Market research firm Gartner forecasts that shipments of major IT devices, including smartphones and PCs, will decrease by 7.6% compared to last year. Second-quarter earnings forecasts are also being revised downward. According to financial information provider FnGuide, Samsung Electronics’ second-quarter consensus estimates are sales of 77.2218 trillion KRW and operating profit of 14.6954 trillion KRW, representing increases of 21% and 17% year-on-year, respectively. These figures are down 1.57% and 3.84% from the estimates made a month ago.

Additionally, forecasts of declining DRAM prices have further dragged down semiconductor stock prices. Taiwanese market research firm TrendForce predicts that DRAM prices will fall by an average of 3-8% in the third quarter of this year. Samsung Securities also expects DRAM growth to slow from the previously forecasted 17% to around 14% this year. Domestic semiconductor companies hold over 70% of the global DRAM market share. This is inevitably bad news for Samsung Electronics and SK Hynix, which rank first and second in DRAM market share.

Consequently, securities firms are lowering their target prices for Samsung Electronics and SK Hynix one after another. For Samsung Electronics, Eugene Investment & Securities lowered its target price from 88,000 KRW to 79,000 KRW, Daol Investment & Securities from 88,000 KRW to 77,000 KRW, and NH Investment & Securities from 87,000 KRW to 78,000 KRW, all adjusting to the 70,000 KRW range. For SK Hynix, Daol Investment & Securities lowered its target from 170,000 KRW to 130,000 KRW, Samsung Securities from 160,000 KRW to 140,000 KRW, Shin Young Securities from 170,000 KRW to 150,000 KRW, NH Investment & Securities from 170,000 KRW to 140,000 KRW, Hyundai Motor Securities from 155,000 KRW to 130,000 KRW, and SK Securities from 160,000 KRW to 130,000 KRW.

For semiconductor demand to revive, a drop in energy prices, including oil, is necessary, but this is also difficult. This would require at least one of the following: the end of the Russia-Ukraine war, an increase in OPEC oil production, or a transition to renewable energy supply that can offset energy shortages, none of which are likely to happen in the short term.

Kim Un-ho, a researcher at IBK Investment & Securities, said, "As global inflation risks rise, consumer demand for electronic devices is rapidly decreasing. Assuming inflation risks gradually ease, the DRAM market is expected to recover around mid-2023, showing a mid-term trend similar to the 2013-2015 cycle in the DRAM market."